Reason Foundation

Legal Cartels Drive Up Subsidies for Sports Stadiums

Steve Malanga has a very accessible article on the warped world of professional sports stadium subsidies over at RealClearMarkets. Economists are remarkably consistent in their criticism of public subsidies for sports stadia. The returns on investment aren't there to justify them. The employment "created" are temporary construction and low-wage service jobs. In fact, much of the so-called economic development is money just recirculated in the region away from entertainment spending--restaurants, movies, shopping--in other places. Yet, elected officials continue to pump tax dollars into these ventures. Why?

Part of the answer is the cartel nature of professional sports. Sports are popular, and cities want to host a team. The cartels puposely restrict supply to bid up the value of the franchise. This bidding if fueled by tax dollars to build shiny new stadia for the wealthy franchise owners and increasingly wealthy professional athletes.

Another reason, at least in the NFL, is the revenue sharing agreement brokered between owners and players in 1993 (also operating as a cartel). According to Malanga and Vanderbuilt University economist John Vrooman, author of a chapter in a new book called the Economics of the National Football League, the agreement capped the revenue going to players. So, owners went after new revenue sources outside the agreement. These revenue sources included luxury boxes and other expensive stadium amenities. These became enticements for luring new franchises to cities and taxpayers foot the bill. And, not suprisingly, the cartels use public subsidies as a guage of local public interest when awarding cities new franchises.

As Malanga writes:

"Over time, team owners naturally have tried to maximize those revenues that are unshared, including lucrative income from luxury boxes and club seats. According to Vrooman, revenues from stadium sites in the last twenty years have grown from 10 percent to 23 percent of total league proceeds.

"Taxpayers enabled much of this. Shortly after the 1993 bargaining agreement, the NFL embarked on an aggressive era of local expansion that included adding new teams in cities where politicians were desperate for a franchise and expanding the revenue capacity of most existing teams by building new stadiums. The end result was an addition of 25 new venues each boasting on average some 150 luxury suites and between 8,000 and 9,000 premium club seats. The first group of 13 stadiums, built before the NFL created its own loan fund to help finance new stadiums, cost $3.3 billion, of which only $888 million, or 27 percent, was private financing. Stadiums in St. Louis, Oakland (which was renovated, not constructed, for $128 million), Baltimore, Tampa Bay, Cleveland and Cincinnati were among those built primarily with public funds.

"With more owners clamoring for stadiums, the NFL then started a loan fund which has helped owners build or renovate another 12 venues. Still, taxpayers have borne about 40 percent of the nearly $8 billion in construction costs for these, though that number is largely skewed by the fact that the Giants and Jets privately financed their extremely expensive (some would say overpriced at $1.6 billion) new stadium. In other venues, including those in Indianapolis, Denver, and Chicago, financing from private sources amounted to less than one-third of the total cost, even with the NFL loan fund pitching in, Vrooman estimates."

Professional sports continues to be a racket where taxpayers lose. For more on this, see here and here.